Chapter 3

Process Costing

Job-Order v. Process Costing

Job-Order Costing
Process Costing
Many jobs are worked on A homogeneous product is
during each period, with
produced on a continuous
each job having different
basis or for long periods of
production requirements.
time.
Costs are accumulated by Costs are accumulated by
job.
department.
The job cost sheet is the key The departmental production
document for accumulating
report is the key document
costs.
showing the accumulation and
disposition of costs.
Units costs are computed by Unit costs are computed by
department on production
job on a job cost sheet.
reports.

Problem Information
Mixing
Unit Information:
Beginning Work in Process:
(Mixing)
(Packaging)

10,000
15,000

Started into Production

Transferred In

70,000
N/A

Ending Work in Process:

(Mixing 100% material,
50% conversion)

20,000

(Packaging 100% material,

40% conversion)

Packaging

N/A
?

5,000

Problem Information (Continued)

Mixing

Packaging

Cost information:
Beginning Work in Process:
Direct materials
Transferred in
Conversion

$18,000
N/A
$31,200

$10,500
$92,250
$13,500

Costs Added Currently:

Direct materials
Transferred in
Conversion

$142,000
N/A
$248,800

$49,500
?
$83,700

Calculation of Equivalent Units

Beginning Work-in-Process Inventory:
Physical Units

100%

XXX

XXX

Started and Completed in Current Period:

Physical Units

100%

Ending Work-in-Process Inventory:

Physical Units X

Percent of work completed in

the current period

Equivalent Units of Production

= XXX
XXX

Equivalent Units Illustration - Mixing

Materials
Beginning WIP:
10,000 x

100%

Conversion Costs
Beginning WIP:
= 10,000

100%

Ending WIP:
20,000 x
100%
Equivalent Units

100%

= 10,000

Started & Completed:

Started & Completed:

50,000 x

10,000 x

= 50,000

50,000 x 100%

= 50,000

= 20,000

Ending WIP:
20,000 x 50%

= 10,000

80,000

70,000

Equivalent Units Illustration Mixing (alternative approach)

Materials

Conversion Costs

Units Completed:

Units Completed:
60,000

100%

Ending WIP:
20,000 x 100%
Equivalent Units

= 60,000

60,000 x 100%

= 60,000

= 20,000

Ending WIP:
20,000 x 50%

= 10,000

80,000

70,000

Cost Per Equivalent Unit (EU) of

Production
Production Cost for Component (include costs
carried forward from beginning WIP)
Equivalent Units of Production for Component

Equivalent Unit Cost for Component

Note:
Equivalent units and cost per equivalent unit are often computed for
direct materials and conversion costs (direct labor & manufacturing
overhead). Conversion costs may also be calculated separately.

Cost Per Equivalent Unit Illustration Mixing

Materials

$18,000 + $142,000 = $2.00

80,000 EU

Conversion

$31,200 + $248,800 =

$4.00

70,000 EU

Total Equivalent Unit Cost:

Materials
Conversion

$2.00
4.00

Total EU Cost
$6.00
See Direct Material, DL, & MOH Journal Entries on Page 84

Costs Accounted For

Transferred Out:
Transferred Out EU x Cost Per EU
Cost in Ending Work-in-Process Inventory:
Ending WIP EU x Cost Per EU

XXX

XXX
XXX

Note:
Total cost is computed for direct materials and conversion costs
(direct labor & manufacturing overhead). Conversion costs may
also be calculated separately.

Costs Accounted For Illustration - Mixing

Transferred Out:
360,000

60,000 EU x $6.00
Cost in Ending Work-in-Process Inventory:
Materials: 20,000 EU x $2.00
Conversion: 10,000 EU x $4.00

Total Cost

$40,000
40,000

80,000
$440,000

See Transferred In Journal Entry on Page 84

Equivalent Units Illustration - Packaging

Materials
Beginning WIP:
15,000 x

100%

Conversion Costs
Beginning WIP:
= 15,000

100%

Ending WIP:
5,000 x
100%
Equivalent Units

100%

= 15,000

Started & Completed:

Started & Completed:

55,000 x

15,000 x

= 55,000

55,000 x 100%

= 55,000

Ending WIP:
5,000 x 40%

5,000
75,000

2,000
72,000

Equivalent Units Illustration Packaging (alternative

approach)
Materials and Transferred In
Conversion Costs

Units Completed (includes 60,000 Units Completed (includes 60,000

transferred in from Mixing):
transferred in from Mixing):
70,000 x 100% = 70,000
70,000 x 100%
= 70,000
Ending WIP:
5,000 x
100%
Equivalent Units

5,000
75,000

Ending WIP:
5,000 x 40%

2,000
72,000

Cost Per Equivalent Unit Illustration Packaging

Materials

Conversion

$10,500 + $49,500
= $0.80
75,000 EU
Transferred In

$13,500 + $83,700
72,000 EU

$92,250 + $360,000 = $6.03

75,000 EU
Total Equivalent Unit Cost:
Materials
Transferred In
Conversion

$0.80
6.03
1.35

Total EU Cost

$8.18

= $1.35

Costs Accounted For Illustration - Packaging

Transferred Out:
572,600

70,000 EU x $8.18
Cost in Ending Work-in-Process Inventory:
Materials: 5,000 EU x $6.83
Conversion: 2,000 EU x $1.35

Total Cost

$34,150
2,700

36,850
$609,450

Production Report Format

Quantity Schedule and Equivalent Units
Units to be accounted for:
Beginning work in process
Started into production
Units accounted for: (compute equivalent units)
Transferred out (from beginning WIP & started & completed)
Ending work in process
Total and Unit Cost
Costs to account for:
Beginning work in process
Started into production
Cost Reconciliation
Costs accounted for:
Transferred out (from beginning WIP & started & completed)
Ending work in process